As we have blogged about several times in the past, homebuilders are frequently in the gunsights of CRA in hopes of capturing potentially unremitted GST/HST on sales made the course of their commercial activity.

A less-explored issue is how CRA sometimes casts too wide a net, and mistakenly assesses unlucky individuals who are not builders, but whose facts may suggest otherwise. The recent case in Wang v. The Queen, 2021 TCC 86 (CanLII) deals with this issue and serves as a cautionary tale for individuals in the unfortunate position of staring down a CRA assessment on the unplanned sale of their new home.

Background

In November 2007, Wang signed agreement for purchase of a townhouse under construction in Markham, Ontario for $413,080.

Wang moved in in May 2011 — after construction was substantially complete.

While this was happening, in 2010, Wang started a relationship with a US citizen. By 2012, they were engaged and had made plans for Wang to move to the US to get married and live permanently. Wang they decided to sell her townhouse, which was sold on June 29, 2012 for $478,000. No GST/HST was collected or remitted on the sale.

After selling, she lived briefly with a relative in Toronto and then moved to the US in December 2012, where she was married and has lived ever since.

After assessing Wang under the Income Tax Act (“ITA”) for undeclared capital gains on the sale of the townhouse, CRA then assessed for the unremitted the GST/HST on the sale.

Wang objected to the GST/HST assessment and — when it was denied —appealed to the Tax Court of Canada (“TCC”).

TCC Appeal

On appeal, Wang argued that she was not a “builder” within the meaning of the term as defined under subsection 123(1) of the Excise Tax Act (“ETA”). Under the ETA, builders are subject to what are known colloquially as the ‘Self Supply Rules’ (see ETA subsection 191, among others), which requires them to self-assess and remit GST/HST on the fair market value (“FMV”) of newly completed/substantially renovated “residential complexes” when they are first sold.

However, among other things, the definition of builder contains an exception for an “individual” who carries “otherwise than in the course of a business or an adventure or concern in the nature of trade”.

In other words, individuals who build and subsequently occupy their own home otherwise than in the course of a business do not have to collect and remit GST/HST on their home’s FMV.

To determine whether Wang was operating “in the course of a business or an adventure or concern in the nature of trade” the TCC applied the seminal test from Happy Valley Farms Ltd v MNR, [1986] 2 C.T.C. 259. The test evaluates taxpayer’s “whole course of conduct” to gauge whether sale of the property is commercial or non-commercial by weighing many different factors, including the nature of the property sold, the length of ownership, the circumstances of the sale, and the “motive” of the taxpayer, among others.

In the end, the TCC found that Wang was not a builder, and vacated the assessments. According to the TCC, the fact that she held title to the property for five years, moved in, took a mortgage, became engaged and left Canada permanently to live with her husband was a “compelling” set of events.

Takeaways

The Wang case confirms the real danger in ‘builder’ cases that the CRA is willing to fight tooth and nail all the way to court even against taxpayers with ‘compelling’ sets of facts.

One notes that Wang was very lucky that she was able to tell a ‘compelling’ story to the court. Taxpayers in the unfortunate situation of staring down a CRA assessment on the sale of their new home should seek professional legal advice as their own situations are likely not as ‘clean-cut’ as was the case in Wang!

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